Startup Funding Club SEIS Fund
For investors happy with the high risks of SEIS, the Startup Funding Club SEIS fund is one of the strongest offers available, in our view.
Originally set up as an angel syndicate in 2012, Startup Funding Club (SFC) is now a leading early-stage investor. To date, it has made over 160 investments – 35 companies were added to its portfolio in 2019 alone. Indeed, a recent report from PitchBook Data named SFC as the most active Angel & Seed investor in the UK and the fifth most active in the world.
Funds from previous years have now started to return cash to investors. The most recent exit, in August 2019, returned 6.4x the net investment cost, an IRR of 86%. Past performance is not a guide to the future – see performance below.
Most of the businesses are very early stage: they will have low or no revenue, so it’s very high risk for investors, softened somewhat by the tax relief. Investors in the current offer should get exposure to up to 25 high-growth innovative companies in a range of sectors, including digital technology, life sciences and consumer goods.
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- SEIS offer exclusive to Wealth Club for non-advised investors
- The UK’s most active Angel & Seed investor
- Evergreen fund investing in early-stage disruptors
- Target return of £3 per £1 invested (not guaranteed)
- Targets up to 25 very young portfolio companies in a range of sectors, including digital technology, life sciences and consumer goods
- Deadline 27 March 2020 for allotment in 2019/20 tax year with potential to carry back to 2018/19
- Minimum investment £10,000 – you can apply online
Startup Funding Club (“SFC”) is as an angel investment club focused on very early-stage businesses. It identifies the opportunities for investment and provides ongoing support and expertise to the portfolio companies in which it invests.
One notable early success, which helped SFC get where it is today, is Onfido, an AI-based identity verification business. Impressed by the management team, SFC invested before the business even had a product; indeed, Onfido was incubated at SFC’s offices. The investment was SEIS qualifying but was made prior to the SEIS fund being set up. In 2019, Onfido was identified as the tenth fastest-growing business in the UK by revenue growth. A recent funding round led by Softbank and Salesforce Ventures, with support from M12 (formerly Microsoft Ventures), valued the company at $250 million. In 2018, SFC’s initial investors had the option to exit their investment for a 30x return on capital, not including SEIS relief. Note that past performance is not a guide to the future.
In 2013, soon after investing in Onfido, SFC launched its first SEIS fund, one of the UK’s first. Since then, SFC has gone on to become a prolific seed investor. A recent report from PitchBook Data named SFC as the most active Angel & Seed investor in the UK and the fifth most active in the world, alongside names such as Y Combinator and TechStars.
The SFC angel network is a group of over 350 active angel investors from various backgrounds, many of whom have direct experience in building and investing in a successful young company. They invest alongside SFC investors and bring additional funding and experience to the portfolio. Angel investors co-invest alongside the fund. To date, SFC has facilitated investments in over 160 early-stage companies across a broad range of sectors and won numerous industry awards for angel and seed investing. In addition to the angel network, SFC has forged ties with some of the country’s leading universities and startup accelerators to further broaden its deal flow.
The SFC team is headed up by Stephen Page, CEO. Stephen’s background is in the software industry, having founded and exited a number of software businesses. Stephen is supported by Joseph Zipfel (featured in the video) as Chief Investment Officer. Joseph’s background is in investment banking and corporate finance. The wider team and board of directors of SFC have backgrounds in investment banking, software, corporate finance, and entrepreneurship. In total the team consists of 12 individuals, 10 of whom are actively involved with investment decisions.
The team invested in 35 new companies in 2019.
Startup Funding Club Ltd is the investment adviser to the fund, which is managed by Kin Capital Partners LLP. Startup Funding Club Ltd is an appointed representative of SFC Capital Partners Ltd.
Watch a video interview with Chief Investment Officer Joseph Zipfel:
The combination of world-leading universities and Fortune 500 companies, specialist tech capabilities, great infrastructure, a pre-eminent financial centre, and supportive policies for SMEs make the UK a great place for startups.
The Fund aims to tap into this area of growth and invest in a portfolio of very early-stage companies with innovative products and disruptive technologies which have the potential to generate successful exits at a significant (tax-free) multiple of the cash invested. The team targets a return of 3x, not guaranteed.
Typically, at the point of investment companies will be less than two years old, have an initial version of the product or service which may be generating early commercial traction but usually have only low or no revenue. At this point, valuations tend to be lower and the risks very high.
SFC seeks to acquire meaningful strategic shareholdings in each company, so as to be able to influence the management of these ventures and put the right expertise, support and governance structure in place from the very beginning. This includes attending board meetings (either as observer or director), establishing the SFC Alumni Network, and establishing the SFC Partner Network.
The Startup Funding Club SEIS Fund targets a return of £3 per £1 invested after five to eight years, excluding any SEIS tax reliefs. Returns and timeframes are not guaranteed.
SFC aims to exit investee companies within five to seven years, not guaranteed.
Investors in the current iteration of the fund can expect exposure to a portfolio of up to 25 companies operating across various sectors including digital technology, life sciences and consumer goods. Startup Funding Club seeks to invest subscriptions over a twelve-month period following a closing date.
Below are portfolio company examples from previous iterations of the SEIS fund. They are outlined to give a flavour of the types of companies you might expect, but may not be part of a new investor's portfolio. SEIS funds tend to be managed on a discretionary basis so each individual portfolio is likely to be different.
Transcend Packaging – recent investment
Transcend Packaging is based in Ebbw Vale, Wales, and makes sustainable paper-based packaging and new bio-resin coated paper that can be used as a substitute for plastic. Its product range includes paper drinking straws which benefited from the recent backlash against single-use plastic ones. Indeed, Transcend Packaging was one of two firms to win a contract in 2018 to supply these to UK and Ireland McDonalds’ outlets. This announcement led several other major brands to engage with the company which now supplies a number of large accounts throughout Europe.
SFC invested in the company from its 2018/19 EIS Fund, following on an initial investment from its 2017/18 SEIS Fund. According to SFC, its holding in the company is currently worth a significant multiple of the original investment cost. Past performance is not a guide to the future.
Cognism is a London-based software company which uses Artificial Intelligence to help sales and business development professionals find prospects with its “Revenue AI” software. The company is one of the fastest-growing technology companies in the UK, having recently raised a $10 million investment led by US-based venture fund PeakSpan and grown its recurring revenue fourfold in 2019.
SFC took part in the first funding round in 2016 and followed on in 2018 from its 2017/18 EIS Fund. Both investments are currently valued at a significant multiple of the original cost, according to SFC.
VN Carbon Capture
As is to be expected with very young businesses, SEIS companies can and do fail.
One failure in the Startup Funding Club previous portfolio is VN Carbon Capture (Gas) Ltd which received investment in March 2014.
The company was formed to pursue the commercialisation of a discovery by researchers at the University of Newcastle allowing a cost-effective capture and recycling of CO2 using nickel nanoparticles which could translate into significant commercial potential. The investment was made on the back of a promising feasibility study and funds were used to run further laboratory tests and simulations with a view to develop the research into industrial technology. Unfortunately, the research showed the technology was not economically viable and did not get commercial traction despite receiving interest from the scientific community, the press and industrial companies. The company dissolved in 2017.
MyFutureNow – exit
MyFutureNow developed technology to help investor trace and consolidate old pensions quickly and easily.
SFC invested in the company in April 2016, recognising the technology was solving a real market need and the company was led by an experienced and credible management team.
In August 2019, SFC exited its investment from Finovation Limited, trading as MyFutureNow (MFN), which was acquired by UK pension giant Legal & General (L&G).
The transaction returned 6.4x the initial net investment cost, which corresponds to an IRR of 86%. Past performance is not a guide to the future.
Whilst the Startup Funding Club SEIS fund has experienced some exits, the fund has yet to return material amounts of capital to investors – which in our view is to be expected. The SEIS fund track record dates back to the 2013/14 tax year and investors should expect seed investments to take longer to mature. Startup Funding Club expects investment holding periods of up to eight years. Unrealised returns for the SEIS fund, before the generous SEIS tax reliefs, are encouraging, in our view.
For instance, for investments made more than five years ago (2013/14 to 2014/15), on average for every £100 invested the fund has generated £1.77 realised returns and £144.29 unrealised (before tax relief). Note: past performance is not a guide to the future.
Source: SFC, as at 30 November 2019. Figures are net of all fees. Past performance is no guide to future performance. These figures do not include any realised returns which would be available through loss relief. In the above examples, initial tax relief of up to 50% could also apply. So, for the tax year 2015/16, the total return including initial tax relief would be £297.03, remember tax rules can change and tax benefits depend on circumstances.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
SEIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances.
This SEIS fund invests in early-stage businesses which are more likely to fail than larger ones. So you should expect a number of failures in the portfolio.
In a portfolio of ten companies, one might do very well (although there are no guarantees), several could fail and the others might just tick along.
Earlier-stage companies usually take longer to mature. Further funding rounds will be common so there is risk of dilution. Earlier-stage companies usually take longer to mature.
A summary of the main charges and savings is shown below. Some of these will be payable by the investor, whilst others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.
|Full initial charge||2.5%|
|Wealth Club initial saving||—|
|Net initial charge through Wealth Club||2.5%||Annual management charge||—|
|Performance fee||30%||Investee company charges|
More detail on the charges
Timing of the offer
Potential allotment in 2019/20 – deadline 27 March 2020
Startup Funding Club has informed us it aims to allot subscriptions received before 30 March 2020 in the 2019/20 tax year. This means the investment could be eligible for carry back to 2018/19. Please note, although SFC has not missed a deadline for investing subscriptions in six years, there are no guarantees.
There are several reasons why SFC stands out as an SEIS fund offer, in our view.
Its strong ties with leading universities and accelerator programmes, combined with its own angel network, give the investment team access to a strong pipeline of deals.
As a result, in recent years, SFC has grown to become one of the UK’s leading startup investors (by number of investments made) and is ranked the fifth most active in the world. This is relevant to investors considering SEIS for two reasons.
Firstly, if you invest today, your investment could be spread across up to 25 companies. This level of diversification is rare among SEIS funds and should be welcome, especially considering the fund invests at a very early stage, when risks are highest.
Secondly, having a healthy pipeline of new deals means the fund should be able to deploy investor money in a timely manner, making tax planning easier. Indeed, SFC has not missed a deadline for investing subscriptions in six years, but there are no guarantees.
Moreover, the structure SFC has put into place to offer support to its portfolio companies post investment adds weight to the offer, in our view.
For experienced investors keen to get exposure to the bright new businesses of tomorrow, who are happy with the risks of SEIS investment, we think this could be one to consider.
Read important documents and apply
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Target return
- Funds raised / sought
- £5.0 million sought
- Minimum investment
- 27 Mar 2020